how smart would it be to invest in a rental property that we will move to when we downsize later (at retirement)?

Asked by mic, Raleigh, NC Fri Jul 30, 2010

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Marc Comisar, Agent, Bonita Springs, FL
Sat Jul 31, 2010
Considering all local markets are least in our area it is a great idea. We are below replacement cost and have a lot of people do just what you are thinking of. We in fact now manage over 250 rental properties....half of which are our buyers that will retire in the next 5-10 years. They are jumping in with both feet.
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Barrett Powe…, , Cary, NC
Sat Jul 31, 2010
You have some great advice from others below. I would only add that you are talking about two different things; purchasing rental property and downsizing for retirement later. Both of these require different strategies.

A typical rental investor should be looking at a perspective property from a point of return on investment, ease of ability to rent, ease of ability to make repairs (and there will be repairs), and many other factors. You can read the article I wrote on my blog about purchasing rental property in the link below.

A typical retiree purchase typically involves downsizing, yes. But it also should include questions about maintenance. But these questions many times are different maintenance issues than rental property. For example, a rental property may be interested in ease of access and replacing components as cheap as possible. This may not provide the best looking option. Whereas a retiree maintenance issue may deal with things like home exterior maintenance and having exterior siding that does not require paint every few years to maintain its look.

I am still bullish on the real-estate market in the long haul. So I do think you can purchase a property today for less than you will be in a few years. But this is probably not a good reason to try and combine the two strategies.
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Don Tepper, Agent, Burke, VA
Fri Jul 30, 2010
Good answers below, especially from Reginald.

People's plans change all the time. They decide they want to live somewhere else. Or one of the folks dies. Or one becomes ill and they want/need to move closer to relatives. Or maybe the neighborhood changes. A neighborhood that looks great now may not be so great in 15-25 years. Or the rental property itself may be pretty nice now, but kind of dated in 25 years. Or maybe you want everything on a single level, but you've bought a multi-story property.

So: Buy a rental property strictly as a rental property. OK, it can be in the area you'd like to move to when you retire. And maybe it can be the same sort of configuration (townhouse, single-family home, etc.). But make sure that it works, today, as a rental. Then, in 15-25 years (or whatever the time span is), if you still want to move there and everything else still is OK, then do so and enjoy. But base your decisions today on it being a rental and only a rental.

Hope that helps.
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Reginold Jon…, Agent, Cary, NC
Fri Jul 30, 2010
It depends on what you are trying to do. If you are looking for rental property because you want to own rental property, then this would be a good area and a great time to buy, however, if you are not in state, managing a property out of state has a few added challenges. How long will it be before you retire? Things can change drastically in a few years so you may have different feelings at that time. My opinion is that speculation in the real estate market is not a great idea now REGARDLESS of where you go. If you want to relocate to this area, do it when you are ready to be hear you will have a greater chance of success.

Take care and good luck!
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Vivian Olkin, Agent, Carrboro, NC
Fri Jul 30, 2010
The very first thing to do is speak with your tax accountant. There are all kinds of tax advantages to making improvements to rental property. I don't know what happens when it becomes owner occupied after you've taken various tax deductions.

Are you absolutely sure that the rental property is where you would want to live when you retire? Rentals are generally different than owner occupied properties, so you may want to rethink it. By the time you want to live there, you may need to put a lot of money in to upgrade it.

I've thought of doing the same thing myself, so it isn't a crazy idea. It may be worth it if you get the right location because it is all about location.
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